TV Azteca results meet expectations

MEXICO CITY -- Second quarter results at broadcaster TV Azteca may have met or bettered expectations, but analysts are keeping a worried eye on ratings.

TV Azteca's net income for the quarter fell 41% to $23 million from $39 million a year ago.

Azteca attributed the decline to an exchange-rate loss of $25 million, versus just $5 million in the second quarter last year. Mexican accounting principles require recording losses on dollar-denominated debt when the peso depreciates against the dollar.

Revenue was higher than expected, up 14% to $120 million from $105 million a year earlier.

World Cup ad sales were between $37 million and $40 million by the end of June and should represent about 80% of Azteca's total World Cup take, says analyst Tim Baker of Warburg Dillon Read.

Azteca told analysts it has 50% of the World Cup TV ad spend in Mexico, even though it didn't capture 50% of the audience. Azteca's average audience share during national prime time was 20.5% in the second quarter versus 30.4% a year ago, and 29.5% for the full-year 1997.

After failing to build audience by splitting popular formats such as novelas on its two channels, Azteca is repositioning channel 13 as its flagship and says ratings are improving as a result.

Although most of Azteca's existing ad contracts are based on Mexico City ratings, where it is traditionally strongest, executives told analysts they will shift to base ad sales on national ratings.

Two new novelas will be launched during the third quarter, along with a number of general entertainment shows. Azteca will produce a total of 10 novelas this year, up from five last year, but is not expecting to increase significantly the number of original shows in this key format going forward.

Azteca's soap "Tentaciones" aired for the last time July 24, having been axed early due to low ratings and reportedly because sponsor Pond's pulled out.

Azteca is also close to introducing the sitcom format into Mexico under a co-production agreement signed with ColumbiaTriStar, which, if successful, could present a major shift in Mexican TV programming. Latin American soaps, unlike their U.S. counterparts, have a finite run.

In addition, Azteca has formed an association with cinema chain Cinemark, its first multi-media ad venture. Though movie advertising represents a small part of Mexico's ad pie, Azteca is analyzing the possibility of radio and/or outdoor deals, analysts said.

At the end of the second quarter, Azteca had $155 million of its 1998 pre-sales remaining and will need $133 million of spot sales to meet the forecasts of Bear Stearns analyst Chris Recouso.

"In the last quarter of the year TV Azteca will be fueled by the spot market almost exclusively and will be negotiating 1999 presales, thus audience share recovery of 4%-5% points is a must," he wrote in a report.